MARIA B. CASTRO, PETITIONER VS. THE COLLECTOR OF INTERNAL REVENUE, RESPONDENT.

Appeal from a decision of the Court of Tax Appeals (in its C.T.A. Case 141)
holding petitioner Maria B. Castro liable under the War Profits Tax Law,
Republic Act No. 55, and ordering her to pay a deficiency war profits tax
(including surcharges and interest) in the amount of P1,360,514.68, and
costs.

The background of this case is set forth in great detail in the decision
appealed from. We quote:

“Petitioner Maria B. Castro, who is authorized to manage her own property, is
a duly licensed merchant. Pursuant to the provisions of Section 4(b) and
(c) of Republic Act No. 55, she filed with the Bureau of Internal Revenue
on February 28, 1947, her war profits tax returns which showed a net worth on
February 26, 1945 in the amount of P431,884.00 and a net worth on December 8,
1941 in the sum of P409,581.57. Although there is indicated an increase in net
worth in the amount of P22,302.43, she is totally exempted from paying any war
profits tax, therefor as the deduction of six per centum (6%) per annum of the
net worth on December 8, 1941 therefrom would show only a taxable increase in
net worth in the amount of P5,574.61 which is not taxable under the said
law.

On November 22, 1947, however, Criminal Case No. 4976 was filed against her
in the Court of First Instance of Manila for violation of Section 4, in
connection with Section 8, of the War Profits Tax Law, for allegedly defrauding
the Republic of the Philippines in the total amount of P1,048,687.77. The
criminal action was filed at the instance of respondent and simultaneous with
the filing of said action, the petitioner receiver for the first time the notice
of assessment dated November 19, 1947 by registered mail from the Collector of
Internal Revenue. The said letter of demand was based on the report of
Supervising Examiner Felipe Aquino of the Bureau of Internal Revenue, who
recommended that the petitioner be assessed and made to pay the sum of
P1,048,687.76 as war profits tax and surcharge, computed as follows:

	Increase in net worth ……………………………………………………	P885.694.63
	Cumulative tax on P500.000 …………………………………………	P352.000.00
	90% tax on P385,694.63 ………………………………………………..	347,125.17
	Total Tax ……………………………………………………………………….	P699,125.17
	Add 50% surcharge ……………………………………………………….	349,562.59
	Total amount due and collectible ………………………………….	P1,048,687.76

Petitioner through counsel filed a motion to quash the criminal action
against her and during the pendency of the same, she amended on December 20,
1947, her original war profits tax returns making it to appear that her true net
worth on February 26, 1945 was P315,438.32 while her net worth on December 8,
1941 was left unchanged at P409,581.57. According to the amended return, there
was therefore a decrease in net worth in the amount of P94,143.25 instead of an
increase of P22,302.43 as originally reported.

On February 9, 1948, the motion of petitioner to quash the information was
denied by the Court of First Instance of Manila. At the scheduled hearing of the
case on the merits on March 7, 1949, the City Fiscal of Manila manifested in
open court that after a re-investigation of the case “the amount of the tax due
and for which the accused stands charged for evading payment is only about
P700,000.00, instead of P1,048,687.76 as stated in the information.” However, at
the continuation of the hearing of the case on February 22, 1950, Supervising
Examiner Felipe Aquino of the Bureau of Internal Eevenue who testified for the
prosecution, declared in answer to questions propounded by the City Fiscal “that
as a result of a detailed re-investigation conducted by his office, it was found
out that no war profits tax was due from the accused in connection with the
present case.” Whereupon, City Fiscal Angeles moved for the dismissal of the
case. Finding the petition for dismissal to be well-taken, the Court of First
Instance of Manila, in an Order dated Febraury 22, 1950, dismissed Criminal Case
No. 4976 against petitioner.

After the dimissai of the criminal case, another report was submitted by the
same Supervising Examiner Felipe Aquino to his superiors wherein he changed his
previous stand taken before the Court of First Instance of Manila, on the basis
of which report another letter of demand for P2,008,293.53 as war profits tax
was issued against petitioner on January 24, 1950. Barely one month thereafter,
another report was again submitted by the same Supervising Examiner Felipe
Aquino to his superiors, on the basis of which another letter of demand for war
profits tax was issued by respondent against petitioner for the sum of
P2,229,976.94 or an increase of P221,683.31 over that assessment of January 24,
1950. The case was again referred to the City Fiscal’s Office for another
prosecution based on the earlier demand but the same was again dropped.

Following insistent requests of petitioner for investigation of her case, the
then Secretary of Finance Pio Pedrosa created a committee on April 11, 1950 to
review or re-examine the assessment for war profits tax issued against the
petitioner. This committee, otherwise known as the Pedrosa Committee, was
chairmanned by Atty. Artemio M. Lobrin of the Bureau of Internal Revenue, with
Mssrs. Melecio R. Domingo and Roman M. Umali of the same office, Vivencio L. de
Peralta of the General Auditing Office and Jose P. Alejandro of the Office of
the Solicitor General, as members. After a through investigation of the case,
the Pedrosa Committee on September 12, 1960, submitted its report recommending
the collection of the amount of P3,593,950.78 as war profits tax due from
petitioner inclusive of surcharge and interests, broken down as follows:

	Taxable increase in net worth …………………………………………………..	P1,762,203.95
	War profits tax due thereon …………………………………………………….	P1,526,093.75
	50% surcharge ………………………………………………………………………	763,046.88
	Total war profits tax and surcharge …………………………………………..	P2,289,140.63
	15% surcharge ………………………………………………………………………	343,371.09
	1% monthly interest thereon from April 1947 to
	September 30, 1950 (42%) ………………………………………………………	961,439.06
	Total amount collectible on September 30, 1950 ………………………….	P3,593,950.78

The findings and recommendations of the Pedrosa Committee were forwarded to
the President of the Philippines for approval and on September 22, 1950, the
President approved the same in toto.

Accordingly, on September 23, 1950, the respondent demanded from the
petitioner Maria B. Castro the payment of the total amount of P3,593,950.78 as
war profits tax computed in detail as follows:

	Net worth on February 26, 1945 as per amended war profits tax returns				P315,438.32
	Add:	(a)	Undeclared cash on February 25, 1945:
			As per this report	P1,871,542.13
			Amount declared	64,097.52	1,807,444.61
		(b)	Overdeclared accounts payable:
			As per amended return	P106,000.000
			Amount per this report	30,000.00	76,000.00
	Net worth on February 26, 1945				P2,198,882.93
	Less: Net worth on December 8, 1941:
		Net worth as per amended return		P409,581.57
	Less:	Accounts payable		43,547.22	P366,034.35
	Increase in net worth as per this report				P1,832,848.58
	Less:	6% per annum on P366,034.35 from
		December 8, 1941 to February 26, 1945			70,644.63
		Taxable increase in net worth			P1,762,203.95

War profits tax due thereon:

	On P50,000.00 (P6,000 exempt)	50%	P22,000.00
	On 30,000.00	60%	30,000.00
	On 200,000.00	70%	140,000.00
	On 200,000.00	80%	160,000.00
	On 500,000.00	90%	450,000.00
	On 762,203.95	95%	724,093.75
	P1,762,203.94		P1,526,093.75
	50% surcharge		763,046.88
	15% surcharge		343,371.09
	1% monthly interest from April 1, 1947 to September 30, 1950 (42%)		961,439.06
	Total war profits tax and 50% surcharge (carried forward)		P2,289,140.63
	Total amount collectible on September 30, 1950		P3,593,950.78

In order to enforce collection of this last mentioned assessment of
P3,593,950.78, the respondent caused to be advertised on October 18, 1950, the
sale at public auction on November 22, and 27, 1950, of various real properties
of petitioner to, satisfy the war profits tax assessed against her. The
petitioner, in order to stop the scheduled sale at public auction, filed on
October 18, 1950, before the Court of First Instance of Manila a petition for
preliminary injunction (Civil Case No. 12356) against the Collector of Internal
Revenue, praying, among others, than an order be issued enjoining said official
from proceeding with the collection by summary methods of the war profits tax
demanded. Over the objection of respondent that the Court of First Instance had
no jurisdiction to entertain the complaint nor to issue a writ of injunction,
the said Court entered on Order dated November 8, 1950 declaring that it had
authority to proceed with the case but denied the petition for preliminary
injunction. Inasmuch as no preliminary injunction was issued by the Court,
respondent proceeded with the distraint and levy and sale at public auction of
the properties of petitioner. These properties, which are situated in the Cities
of Manila, Pasay, and Tagaytay and in the Municipalities of Caloocan and Makati,
Rizal, and Moncada, Tarlac, and described more particularly in Exhibits C. C-1,
C-2, C-3, C-4 and C-5 of the petition for injunction filed with this Court, were
offered for sale on November 22, and 27, 1950 as scheduled, to answer for the
war profits tax liability of petitioner to the Republic of the Philippines in
the assessed sum of P3,593,950.78, inclusive of surcharges and interest from
April 1, 1947 to September 30, 1950.

For lack of bidders on the scheduled dates of sale, the following properties
(except those in Tagaytay) with their corresponding assessed value, were
forfeited to the Government under Section 328 of the National Internal Revenue
Code:

	Property	Assessed Value
	Manila …………………………………………………………….	P233,460.00
	Balintawak ……………………………………………………..	521,390.00
	Pasay …………………………………………………………….	18,320.00
	Makati ……………………………………………………………	4,830.00
	Tarlac …………………………………………………………….	12,520.00
	Tagaytay ………………………………………………………..	62,930.00

In another sale at public auction on April 23t 1954, the property of
petitioner situated in Caloocan, Rizal, with an assessed value of P4,990.00 was
also offered for sale to answer for her war profit tax liability. There being no
bidders in this sale as in the previous sale, this last mentioned real property
of petitioner was also forfeited to the Government.

The petitioner has not exercised her right of legal redemption with respect
to ail .these real properties with a total assessed value of P858.440.00 which
were sold at public auction by the respondent and forfeited in favor of the
Government for lack of bidders.

Parenthetically, it may be stated that the hearing of Civil Case No. 12356
before the Court of First Instance of Manila for Preliminary Injunction was not
continued to its final determination by said Court as the Supreme Court in a
decision promulgated on October 31, 1951 declared the lower court without
jurisdiction to proceed with the trial. (Saturnino David vs. The Honorable
Simeon Ramos and Maria B. Castro, G. R. No. L-4300).

In the course of the summary methods employed by the respondent to enforce
the collection of the war profits tax liability of petitioner, the respondent
also distrained and advertised for sale the properties of the Marvel Building
Corporation in which the petitioner had a substantial interest. To counteract
the move, the said corporation through counsel filed on November 30, 1950, Civil
Case No. 12555 in the Court of First Instance of Manila wherein it sought to
enjoin the respondent Collector of Internal Revenue from selling at public
auction its various properties described in the complaint. While the corporation
was able to secure the injunction from the lower court, the same was dissolved
by the Supreme Court in its decision in G.R. No. L-5081, Marvel Building
Corporation vs. Saturnino David, promulgated on February 24, 1954. Petitioner
Maria B. Castro was declared therein as the sole and exclusive owner of all the
shares of stock of the Marvel Building Corporation and all the other partners
are her dummies.

In the meantime, petitioner filed on December 10, 1951, Civil Case No. 15316
with the Court of First Instance of Manila against the respondent Collector of
Internal Revenue for the recovery of the properties advertised for sale on
November 22, and 27, 1950 which for lack of bidders were forfeited to the
Government. However, before the case could be tried on the merits before said
Court the Court of Tax Appeals was created by Republic Act No. 1125 and pursuant
to Section 22 thereof, the record of the case was remanded for final disposition
to this Court. This last mentioned case is now pending hearing before this
Court.

At this juncture, it should be stated that again on December 22, 1951 an
additional war profits tax was assessed against the petitioner in the sum of
P20,425.00 based allegedly on certain amounts receivable which petitioner
received from the Magdalena Estate, Inc. Consequently, the total war profits tax
liability of petitioner, exclusive of surcharge and interest, as found by the
Pedrosa Committee was increased to P1,546,518.76, itemized as follows:

	Tax due as per Pedrosa Committee …………………………………………………..	P1,526,093.75
	Additional war profits tax on aocount of undeclared
	amounts receivable from the Magdalena Estate, Inc. ……………………………	20,425.00
	Total war profits tax exclusive of surcharge and interest ………………………	P1,546,518.75

To satisfy fully the amount of the war profits tax assessed against
petitioner, the respondent on September 29, 1954, caused to be advertised for
sale at public auction for November 2, 1954, other real properties of petitioner
situated in Manila. These properties are described in detail in Appendix B of
the petition for review filed with this Court. According to the “Amended Notice
of Sale” (Appendix B, Petition for Review), the properties were seized,
distrained and levied upon from petitioner “in satisfaction of internal revenue
tax and penalties amounting to P4,539,556.26, computed as of April 30, 1954” due
from her in favor of the Republic of the Philippines. For lack of bidders at the
time of the scheduled! sale on November 2, 1954, the properties in question were
forfeited to the Government under Section 328 of the National Internal Revenue
Code for the total amount of P3,547,892.41 which was allegedly the balance of
petitioner’s tax liability as of that date.

For the expiration of the one-year period provided for in Section 328 of the
National Internal Revenue Code within which petitioner may redeem the real
properties forfeited in favor of the Governv ment in the sale at public auction
held on November 2, 1954, the petitioner filed with this Court on September 30,
1955, a petition for the annulment of said sale and forfeiture on the ground
that her properties were advertised for sale on a tax claim of the Government
far in excess of the alleged war profits tax, surcharges and penalties by
respondent. Respondent filed his opposition to the petition and after due
hearing where evidence was adduced in support of the petition as well as
opposition thereto, this Court, in a resolution dated October 31, 1955, declared
the auction sale of November 2, 1954 as well as the resulting forfeiture, null
and void and of no legal force and effect because of the admitted discrepancy in
the amount of tax stated to the notice of sale for which the properties were
auctioned and the actual amount of tax assessed and demanded.

The said resolution being without prejudice to such action and proceedings a
respondent may take in accordance with law, respondent demanded from the
petitioner the amount of P3,594,881.51 not later than November 10, 1955 or he
would again proceed with the resale of her properties on December 12, 1955. To
stop the sale, petitioner filed a petition for injunction with this Court on
November 22, 1955 requesting that respondent be enjoined from proceeding with
the resale of her properties scheduled on December 12, 1955; that the said
properties be released to her; and that she be declared not liable for the war
profits tax assessed and demanded of her. After due hearing of this petition and
the opposition thereto, this Court in a resolution dated December 10, 1955,
denied the injunction and held in abeyance the determination. of the other
questions until after the case shall have been heard on the merits. The
properties were therefore advertised for sale on December 12, 1055 to answer for
a war profits tax liability of petitioner to the Republic of the Philippines for
the alleged amount of P3,594,307.51 computed as of that date. For lack of
bidders, the same were forfeited to the Government. Those properties and the
amounts for which they were forfeited are as follows:

	Aguinaldo Building ………………………………………………………	P2,026,517.10
	Wise & Co. Building ……………………………………………………..	670,291.47
	Zobel Mansion …………………………………………………………….	408,501.24
	Shellborne Hotel …………………………………………………………	489,491.70
	Total …………………………………………………………………………	P3,594,801.51
	Add: Prior forfeitures ……………………………………………………	888,440.00
		P4,453,241.51

After due hearing and reception of evidence, the Tax Court annulled the last
tax sale of December, 1955, covering the four Manila buildings, on account of
irregularities in the notices of sale, but for the rest, it found against
petitioner and assessed her tax liability as follows:

	“Net worth on Feb. 26 1945 as per amended war profits tax return			P315,439.32
	Add:
		(a)	Undeclared cash on February 26, 1945; As per Pedrosa Committee report	P1,871,542.13
			Amount declared	64,097.52	1,807,444.61
		(b)	Accounts Payable:
			As per amended return	P106,000.00
			Amount per Pedrosa Committee Report—P30,000.00
			Accounts payable to Lao Kank Suy recognized by Court—76,000.00	106,000.00
	“Net worth on Feb. 26, 1945				P2,122,882.93
	Less: Net worth on December 8, 1941;
	Net worth as per amended return			P409,581.57
	Less Accounts payable			43,547.22	366,034.35
	Increase on net worth				P1,756,848.58
	Less 6% per annum on P366,34.35 from Dec- 8, 1941 to Feb. 26, 1945				70,644.63
	Taxable increase in net worth				P1,686,203.95
	Add:	Undeclared accounts receivables from
		Magdalena Estate, Inc. as of Feb. 26,
		1945 that was discovered in June, 1951 only			21,500.00
	Total taxable increase in net worth				P1,707,703.95
	War Profits tax due thereon:
	On	P50,000.00 — (P6,000.00—Exempt) ….. at 50%			P22,000.00
		P50,000.00 — ……………………………. at 60%			30,000.00
		200,000.00 — ……………………………. at 70%			140,000.00
		200,000.00 — ……………………………. at 80%			160,000.00
		500,000.00 — ……………………………. at 90%			450,000.00
		707,703.95 — ……………………………. at 95%			672,318.75
		Total			P1,474,318.75
	50% surcharge on P1,474,318.75 ……………………………………………….				P737,159.37
	15% sucharge on P1,474,318.75 ………………………………………………..				221,147.81
	1% monthly on P1,474,318.75 from 4-1-47 to 11.22-50 …………………				644,768.73
		Total amount collectible on 11-22-50 ………………………………….			P3,077,394.66
	Less: Value of properties sold:
		On Nov. 22, 1950 …………………………………………………………….		P1,556,000
		On Nov. 27, 1950 …………………………………………………………….		150,900
		April 23, 1954 …………………………………………………………………		9,980	1,716,880.00
			Total due of December 12, 1955 ……………………………….		P1,360,514.66.”

From this decision, Maria Castro appealed to this Court. The nineteen alleged
errors committed by the Court of Tax Appeals and discussed by appellant in her
printed brief actually revolve abound four main defenses: (a) that the War
Profits Tax Law (R.A. No. 55) is unconstitutional and void; (b) that said law
was improperly applied to the case of the appellant; (c) that even if appellant
were subject to the tax liability declared by the court below, such liability
was totally extinguished by the levy and forfeiture of certain properties of
hers; and (d) that appellant’s acquittal in the criminal case instituted against
her for violation of the War Profits Tax Law is a bar to the collection of the
taxes assessed, and specially of the 50% surcharge.

(a) Petitioner’s attack on the constitutionality of Republic Act No. 55,
commonly known as the War Profits Tax Law, on account of its retrospective
operation (Error XVIII), is now foreclosed by our decision in Republic vs. Oasan
Vda. de Fernandez, G.R. No. L-9141, September 25, 1956, wherein this Court
upheld the validity of the statute; and no reasons are alleged that would
justify a departure from the ruling made in that case.

(b) Petitioner Castro complains (Errors I and VI) that the Tax Court had
declared subject to the war profits tax her cash transactions from June, 1945 to
December 31, 1946, when Republic Act No. 55 levies that tax only on the value of
the taxpayer’s assets (including real and personal property and/or cash in
banks) as of February 26, 1945, minus his liabilities,

This argument misconceives the process whereby the Tax Court (and the Pedrosa
Committee) arrived at the petitioner’s net worth as of February 26, 1945.
Because of the difficulty in determining the taxpayer’s cash on hand on said
date (since her books and records did not show her invested capital in 1945),
said tax authorities adopted the method of starting from her reported cash on
hand on December 31, 1946, and working backwards to February, 1945, by adding to
the reported cash the disbursements made by Castro during 1945 and 1946, and
then deducting her receipts from the same period. We see nothing fundamentally
erroneous in this method, for, as pointed out in the appealed decision,

“if cash on hand at the beginning of the period, plus receipts during the
period minus disbursements during the period, equals cash on hand at the end of
the period, the converse must necessarily be true.”

Such method is in effect but an application (in reverse) of the inventory or
net worth system that, contrary to appellant’s contention (Error XIII), has been
approved by this Court in Perez vs. Collector of Internal Revenue, G.R. No.
L-10507, May 30, 1958; Collector vs. A. P. Reyes, L-11534, November 25,, 1958;
and Commissioner of Internal Revenue vs. Avelino, 113 Phil., 48.

The analysis of petitioner’s transaction for 1945 and 1946 merely laid the
basis for determining the undisclosed cash funds in her possession as of
February 26, 1945 (amounting to Pl,807,444.61), and it is this cash that was
found subject to the war profits tax.

It is urged, however, that even if this finding were correct, still, under
Republic Act No. 55, only “cash in banks” is expressly mentioned as taxable, and
appellant infers that cash on hand not so deposited was not intended to be
subject to war profits tax. This thesis appears unmeritorious: cash held by the
taxpayer on February 26, 1945 clearly falls under the description of “assets,
including real and personal property” that section 2 of the Act expressly orders
included in determining the taxable net worth. If “cash in banks” is expressly
mentioned by the Act, it is not because cash on hand was intended to be
excluded, but because “cash in banks” is not, strictly speaking, part of the
assets of the taxpayer, but assets of the banks where the cash is deposited. It
is well established that a so-called “bank deposit” is in reality a loan to the
bank, the latter acquiring title to the amount “deposited”, subject to its
withdrawal (or recall of the loan) on the dates specified. Taxpayer’s “assets”,
therefore, would not per se include cash deposited in banks by the
taxpayer; and its inclusion had to be expressly prescribed by the statute in
order to remove all doubt as to its taxability.

Petitioner endeavoured to show (Errors VII to XI) that part of the amount of
cash thus arrived at actually originated in receipts from transactions made by
her after February 26, 1945 but which were not disclosed in her books and
accounts. Aside from the fact that this claim in her behalf contradicted her
admission to the Pedrosa Committee that all her 1946 receipts were recorded in
her books (v. Respondent’s Exhibit 6-A), it lay within the exclusive discretion
of the Tax Court to believe or not to believe her evidence and statements, and
those of her witnesses regarding the source of the cash in question; and the
rule is well settled that in cases of this kind, only errors of law, and not
rulings on the weight of evidence, are reviewable by this Court. The same
principle precludes us from interfering with the Tax Court’s refusal to credit
the other deductions claimed by petitioner as amountg obtained from loans from
various individuals. The Court of Tax Appeals found those items unproved, except
the P76,000.00 payable to Lao Kang Suy, which it accepted, although it had been
rejected by the Pedrosa Committee.

Similarly, the finding that the petitioner had disbursed in 1946
P1,025,000.00 on account of her subscription to the stock of the Marvel Building
Corporation (Error XII) may not be disturbed by us.

(c) The third main ground of appeal is predicated on the acquittal of
petitioner in case No. 4976 of the Court of First Instance of Manila, wherein
she was criminally prosecuted for failure to render a true and accurate return
of the war profits tax due from her, with intent to evade payment of the tax.
She contends (Assignments of Error II to IV) that the acquittal should operate
as a bar to the imposition of the tax and specially the 50% surcharge provided
by section 6 of the War Profits law (R.A. No. 55), invoking the ruling in Coffey
vs. U.S., 29 L.Ed. 436.

With regard to the tax proper, the state correctly points out in its brief
that the acquittal in the criminal case could not operate to discharge
petitioner from the duty to pay the tax, since that duty is imposed by statue
prior to and independently of any attempts on the part of the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil liability
derived from crime that would be wiped out by the judicial declaration that the
criminal acts charged did not exist.

As to the 50% surcharge, the very United Supreme Court that rendered the
Coffey decision has subsequently pointed out that additions of this kind to the
main tax are not penalties but civil administrative sanctions, provided
primarily as a safeguard for the protection of the state revenue and to
reimburse the government for the heavy expense of investigation and the loss
resulting from the taxpayer’s fraud (Helvering vs. Mitchell, 303 U.S. 390, 82
L.Ed. 917; Spies vs. U.S. 317 (U.S. 492). This is made plain by the fact that
such surcharges are enforceable, like the primary tax itself, by distraint or
civil suit, and that they are provided in a section of R.A. No. 55 (section 5)
that is separate and distinct from that providing for criminal prosecution
(section 7). We conclude that the defense of jeopardy and estoppel by reason of
the petitioner’s acquittal is untenable and without merit. Whether or not there
was fraud’ committed by the taxpayer justifying the imposition of the surcharge
is an issue of fact to be inferred from the evidence and surrounding
circumstances; and the finding of its existence by the Tax Court is conclusive
upon us (Gutierrez vs. Collector, G.R. No. L-9771, May 31, 1957; Perez vs.
Collector, supra).

(d) The fourth main ground adduced on behalf of the petitioner (Errors II and
XIV) is that the sale and forfeiture to the government (due to lack of bidders)
of the properties of petitioner in Manila, Balintawak, Pasay, Makati, Tarlac,
Tagaytay and Caloocan, which had been levied upon by the respondent Collector of
Internal Revenue and advertised for sale in 1950 and 1954, constitutes a full
discharge of petitioner’s tax liabilities. In so arguing, she relies on the
provisions of paragraph 1 of Section 328 of the Internal Revenue Code, reading
as follows:

SEC. 328. Forfeiture to Government for want of bidder.—In case there is no
bidder for real property exposed for sale as herein above provided or if the
highest bid is for an amount insufficient to pay the taxes, penalties, and
costs, the provincial or city treasurer shall declare the property forfeited to
the Government in satisfaction of the claim in question and within two days
thereafter shall make a return of his proceedings and the forfeiture, which
shall be spread upon the records of his office.”,

and appellant contends that in the provision to the effect that in the
absence of bidders, the property is to be “forfeited to the Government in
satisfaction of the claim in question”, the term “satisfaction” signifies
nothing but full discharge of the taxes, penalties, and costs claimed by the
state. Carried to its logical conclusion, this theory would permit a clever
taxpayer, who is able to conceal most or the more valuable part of his property
from the revenue officers, to escape payment of his tax liability by sacrificing
an insignificant portion of his holdings; and we can not agree that in providing
that the forfeiture of the taxpayer’s distrained or levied property, for lack of
adequate bids, should operate in satisfaction of the total tax claims even
beyond the value of the property forfeited. That the satisfaction prescribed in
section 328 of the Revenue Code was intended to mean only a discharge pro
tanto is confirmed by the provisions of section 330 of the Revenue Code to
the effect that “remedy by distraint of personal property and levy on realty may
be repeated if necessary until the full amount due, including all
expenses, is collected”. This section makes no distinction between forfeitures
to the Government and sales to third persons, and we are satisfied that no
distinction was intended and that none is warranted.

Nor do we see that the petitioner has any ground for complaining that the
properties forfeited were undervalued (Error XV). The relation between assessed
value and market price being variable, it is not a matter of judicial notice.
However, the Court of Tax Appeals appraised and forfeited properties at double
their assessed valuation, and thereby credited her with a part payment of
account of her tax liability in the amount of P1,716,880.00. There is no
adequate evidence that they were worth more, petitioner’s own estimates of value
being obviously unreliable, due to her direct interest in the matter under
investigation. Since the burden of proof lay evidently on the taxpayer, she is
not in a position to complain in this regard.

It may be noted in this connection that the validity of the levy and sale of
her properties in November of 1950 and April 1954 is assailed by appellant in
her fifth assignment of error; but as this point was not raised in the Court
below, the same can not be entertained for the first time on appeal.

(e) As pointed out by the counsel for the Government, appellant’s stand that
the undeclared cash should be averaged or spread out for the years 1945, 1946
and 1947 (Error XVI) assumes that what was being subjected to tax was her
undeclared income during said years, which is not correct, as previously
declared in this opinion. If her expenditures during 1945 and 1946 was
scrutinized and analyzed, it was merely to determine the actual value of her
taxable net worth as of February 26, 1945, that was subject to the war profits
tax, as representing accumulated profits earned during the occupation years.

Finally, no argument is needed to show that unless taxes are to be left at
the discretion of the taxpayer, she can not be allowed to seek refuge or relief
by pleading (Error XVII) the alleged inefficient and erratic manner in which her
books to the requirements of the revenue laws; and that it is incredible that a
trader like the appellant should be able to do business running into millions of
pesos without knowing exactly her financial condition.

Appellant’s alleged Error XIX, being merely pro forma, requires no
discussion.

Finding no reversible error in the decision appealed from, we hereby affirm
the same, with costs against appellant.

Bengzon, C. J., Padilla, Bautista Angelo, Labrador, Concepcion,
Paredes, and Dizon, JJ., concur.

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December 28, 1962

Reyes, J. B. L., J.:

Petitioner-appellant Maria B. Castro asks for partial reconsideration of the
decision of this Court dated April 26, 1962, contending that the one per cent
(1%) monthly interest on the war profits tax due from her should be limited to a
total of thirty-six per centum (36%).

This contention is made to rest on the provisions of the Internal Revenue
Code on Income Tax, Section 51 (e), as amended by Republic Act No. 2343
(approved on June 29, 1959), to the effect that:

“SEC. 51 (e). Additions to the tax in case of nonpayment.—(1) Tax
shown on the return.—Where the amount determined by the taxpayer as the tax
imposed by this Title or any installment thereof, or any part of such amount or
installment, is not paid on or before the date prescribed for its payment, there
shall be collected as a part of the tax, interest upon such unpaid amount at the
rate of one per centum a month from the date prescribed for its payment
until it is paid: Provided, That the maximum amount that may be collected
as interest on deficiency shall in no case exceed the amount corresponding to a
period of three years, the present provisions regarding prescription to the
contrary notwithstanding.”

Assuming, without deciding, that this particular section is applicable to war
profits taxes, we agree with the Solicitor General that there is no legal ground
for applying retroactively to the delinquencies of the petitioner under the War
Profits Tax Law (and which accrued since September 23, 1950, when the
corresponding tax assessment was issued) the terms of a law (R.A. 2343) enacted
almost nine (9) years later. It is elementary that laws are presumed to operate
only prospectively, and have no retroactive effect in the absence of clear
provisions to the purpose. As it stood in 1950, Section 51 (e) of the Revenue
Code provided for monthly interest without limitation of the number of
months:

SEC. 51 (e) Surcharge and interest in case of delinquency.—To any sum
or sums due and unpaid after the dates prescribed in subsections (b), (c) and
(d) for the payment of the same, there shall be added the sum of five per
centum on the amount of tax unpaid and interest at the rate of one per
centum a month upon said tax from the time the same became due, except from
the estates of insane, deceased, or insolvent person.”

Petitioner contends that the imposition of interest amounts to a penalty, and
that laws imposing lighter penalties are given retrospective effect. We disagree
with the basic assumption, and hold that the imposition of 1% monthly interest
is but a just compensation to the state for the delay in paying the tax, and for
the concomitant use by the taxpayer of funds that rightfully should be in the
government’s hands (U.S. vs. Goldstein, 189 F(2d) 752; Ross vs. U.S. 148 Fed.
Supp. 330; U.S. vs. Joffray, 97 Fed. (2d) 488). The fact that the interest
charged is made proportionate to the period of delay constitutes the best
evidence that such interest is not penal but compensatory.

WHEREFORE, the petition for reconsideration must be, and hereby is
denied.

Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon,
Regala, and Makalintal, JJ., concur.